First National Bank v. Sauls, 183 N.C. 165 (1922)

March 15, 1922 · Supreme Court of North Carolina

183 N.C. 165

FIRST NATIONAL BANK v. W. R. SAULS et al.

(Filed 15 March, 1922.)

1. Mortgages — Title — Cancellation — Bills and Notes — Assignment— Statutes.

Where a note, secured by a mortgage, is assigned and pledged as collateral by the mortgagee to his own note, without an assignment of the mortgage conveying title for the purpose of the security, but which was only left with the payee of his note, the legal title to the lands remains in the mortgagee, who alone is authorized to cancel the mortgage. O. S., 2594 (1).

2. Same — Registration—Notice.

Where the lender of money accepts as collateral a note secured by mortgage, in order to protect himself he must have the legal title transferred and assigned to him by a proper conveyance for the purpose, and have it registered as notice against subsequent conveyances for value, etc.; otherwise, the assignment of the note can operate on the note alone.

3. Same — Mortgagees—Cancellation in Person — Exhibit of Instruments— Satisfaction.

Only the mortgagee is entitled to have his' mortgage canceled on the book in the office of the register of deeds, either in person, C. S., 2594 (1), or by the register of deeds upon the exhibition of the mortgage and note properly endorsed by him, C. S., 2594, subsecs. 2 and 3; and when the mortgagee cancels the instrument in person, under subsec. 1, it is a complete release and discharge of the mortgage, subsec. 4, for in such case the statute does not require the exhibition of the mortgage and the note it secures.

4. Same — Collateral.

The legal title to mortgaged lands is conveyed by tbe instrument to tbe mortgagee, and remains in bim until transferred or assigned, for tbe purpose of tbe security or tbe cancellation of tbe instrument, C. S., 2594; and where tbe mortgagor has afterwards conveyed tbe fee-simple title to another, and receives a mortgage back to secure a note for tbe balance of tbe purchase price of which tbe same mortgagee becomes tbe bolder, bis personal cancellation of tbe first mortgage, without producing it or tbe note it secures, is a complete discharge or release of tbe lien thereof, and where be borrows money after such cancellation, and hypothecates tbe note of tbe second mortgage as collateral to bis own, tbe lender for tbe purposes of tbe security, acting in good faith, has a prior lien on tbe lands.

5. Mortgages — Deeds and Conveyances — Statutes—Connor Act.

Tbe Connor Act, requiring tbe registration of conveyances to give notice to subsequent purchasers, etc., includes mortgages within its terms.

Appeal by plaintiff from Crammer, J., upon a controversy submitted upon facts agreed at February Term, 1922, of ObaveN.

The defendant J. L. Sauls, on 8 September, 1919, executed to Sauls & Lamb his notes for $6,000, secured by mortgage upon a tract of land in Graven County, which was duly registered 10 September, 1919, and thereafter, on 18 November, 1919, the mortgagees obtained a loan of $4,000 from the plaintiff First National Bank of Kinston to which they delivered the mortgage notes aforesaid as collateral security, and left with the bank, without an assignment thereof, the mortgage securing the notes. Thereafter, on 27 January, 1920, the mortgagor, J. L. Sauls, executed a warranty deed for the same tract of land to Lafayette King and wife, who executed to William Dunn, Jr., trustee, a deed of trust thereon to secure the notes executed for the purchase money thereof. On 13 July, 1920, the mortgagees, Sauls & Lamb, in the first mortgage, canceled the record of the mortgage, which had been executed to them by J. L. Sauls on the record thereof in the register’s office of Graven by making this entry thereon: “This mortgage has been paid and satisfied in full. 'This 13 July. Sauls & Lamb, by R. W. Lamb. Witness, S. H. Fowler, register of deeds”; and thereafter they obtained a loan for $8,500 from the People’s Bank of New Bern by placing as collateral security for such loan the notes executed by King and wife, and secured by deed of trust above referred to.

The said entry of satisfaction on the margin of the record of said mortgage given by said J. L. Sauls to Sauls & Lamb was made without the knowledge, consent, or authority of the plaintiff, and plaintiff did not discover such entry until about 8 December, 1921, just prior to the commencement of this action.

Tbe court adjudged, upon tbe facts agreed, tbat tbe loan made by tbe People's Bank upon the notes secured by tbe King deed of trust is protected by tbe cancellation of tbe mortgage, wbicb was a prior mortgage to tbe King deed of trust until its cancellation, and beld tbat sucb cancellation upon tbe record operated upon tbe mortgage and tbe record of registration for tbe discharge of tbis prior encumbrance.

Appeal by plaintiff.

R. A. Nunn for plaintiff.

Guión & Guión for defendant.

Clark, C. J.

Upon tbe facts agreed there was no assignment of tbe mortgage of J. L. Sauls to Sauls & Lamb to tbe plaintiff First National Bank of Kinston, but tbe said mortgage was merely left by them witb tbe cashier of tbe bank. Therefore tbe legal title of tbe land described in tbis mortgage was never divested from tbe mortgagees, Sauls & Lamb. Williams v. Teachey, 85 N. C., 402. And under C. S., 2594 (1), tbe mortgagees, Sauls & Lamb, still bolding tbe legal title, were alone authorized to cancel tbe mortgage.

Tbe First National Bank of Kinston, witb whom Sauls & Lamb left tbe notes wbicb they beld as mortgagees of J. L. Sauls, could have protected itself by requiring tbe transfer and assignment of tbe mortgage wbicb conveyed tbe land therein described, and by registration of sucb assignment would have given notice to tbe world tbat as assignee of sucb mortgage tbis bank alone was authorized to make cancellation thereof. But in tbe absence of sucb notice, tbe mortgagees having entered cancellation thereof, tbis became an absolute release and discharge.

Tbe question above presented has been so fully and well considered by tbis Court in several cases, to wit: Weil v. Davis, 168 N. C., 298; Hayes v. Pace, 162 N. C., 288; Jones v. Williams, 155 N. C., 179; which have been cited witb approval in Parrott v. Hardesty, 169 N. C., 669, tbat it is not necessary to look further for authority for tbe ruling therein so clearly announced tbat there must be an assignment of a mortgage on real estate, to operate upon tbe land described in tbe mortgage in order tbat tbe power of sale may pass to tbe assignee. If tbis is not done tbe legal title will remain in tbe mortgagee and tbe assignment of tbe notes can operate only on tbe notes.

It follows tbat in tbis case tbe legal title remained in Sauls & Lamb, tbe mortgagees, after tbe deposit of tbe mortgage notes and of tbe unassigned mortgage witb the National Bank of Kinston and by virtue of C. S., 2594, already cited, tbe mortgagees were authorized to make tbe entry of cancellation.

Tbe following is tbe language of C. S., 2594: “Discharge of record of mortgages and deeds of trust. Any deed of trust or mortgage registered as required by law may be discharged and released in tbe following manner.:

“1. The trustee or mortgagee, or bis or her legal representative, or tbe duly authorized agent or attorney of such trustee, mortgagee, or legal representative, may, in tbe presence of tbe register of deed or bis deputy, acknowledge the satisfaction of the provisions of such deed of trust or mortgage, whereupon tbe register or bis deputy shall forthwith make upon tbe margin of tbe record of such deed of trust or mortgage an entry of such acknowledgment of satisfaction, which shall be signed by tbe trustee, mortgagee, legal representative, or attorney, and witnessed by tbe register or bis deputy, who shall also affix bis name thereto.

“2. Upon tbe exhibition of any mortgage, deed of trust, or other instrument intended to secure tbe payment of money, accompanied with tbe bond or note, to tbe register of deeds or bis deputy, where tbe same is registered, with tbe endorsement of payment and satisfaction appearing thereon by tbe payee, mortgagee, trustee, or assignee of tbe same, or by any chartered active banking institution in tbe State of North Carolina, when so endorsed in tbe name of tbe bank by an officer thereof, tbe register or bis deputy shall cancel tbe mortgage or other instrument by entry of ‘satisfaction’ on tbe margin of tbe record; and tbe person so claiming to have' satisfied tbe debt may retain’ possession df tbe bond or mortgage or other instrument. But if tbe register or bis deputy requires it, be shall file a receipt to him showing by whose authority tbe mortgage or other instrument was canceled.

“3. Upon the exhibition of any mortgage, deed of trust, or other instrument intended to secure tbe payment of money by tbe grantor or mortgagor, bis agent or attorney, together with tbe notes or bonds secured thereby, to tbe register of deeds or bis deputy of tbe county where tbe same is registered, tbe deed of trust, mortgage, notes, or bonds being at tbe time of said exhibition more than ten years old, counting from tbe date of maturity of tbe last note or bond,, tbe register or bis deputy shall make proper entry of cancellation and satisfaction of said instrument on tbe margin of tbe record where tbe same is recorded, whether there be any such entries on tbe original papers or not.

“4. Every such entry thus made by the register of deeds or bis deputy, and every such entry thus acknowledged and witnessed, shall operate and have tbe same effect to release and discharge all tbe interest of such trustee, mortgagee, or representative in such deed or mortgage as if a deed of release or reconveyance thereof bad been duly executed and recorded.”

Tbe language of subsection 4 thereof explicitly provides that such ■entry shall operate “to release and discharge all the interest of the trustee or mortgagee” as fully “as if a deed of release or conveyance thereof had been duly executed and recorded.”

This matter is fully and clearly stated and held in Smith v. Fuller, 152 N. C., 13. The People’s Bank of New Bern had the records of the county examined, and finding therein the mortgage to Sauls & Lamb properly canceled by the mortgagees, was absolutely protected in the loan made to the holders of the notes secured by the King deed of trust.

In Morton v. Blades, 144 N. C., 34, the Court used this language, the •opinion being written by the distinguished author of the Connor Act: “It appears from the statement of his Honor, in the case on appeal, that the plaintiffs relied, in support of their motion, on the fact that the assignment had not been registered. We concur with his Honor that as between the parties and their heirs it was not required to be registered. Treating it as a deed of conveyance carrying the legal title, we know of no statute or decision requiring its registration, when the rights of no creditors or purchasers interveneIn this case the notes secured by the mortgage were past due, and the mortgagees certified to the bank that they had been paid and satisfied and there was nothing which pointed to any transfer of the mortgage securing the same.

The plaintiff’s counsel contends that in addition the bank shoidd have required the mortgagee to produce the notes and mortgage. If the notes and mortgage had been paid the mortgagees would naturally not be in possession. They would legally have been delivered to the mortgagor, and there was nothing in the statute which required the creditor or purchaser to seek the mortgagor and inquire of him whether they had been paid. The second section of C. S., 2594, requiring cancellation, •expressly provides that if not canceled by the mortgagee or trustee, that the mortgage or deed -of trust, with the note secured, may be produced, ■•and, if marked satisfied, the register of deeds shall mark the instrument •canceled. Neither notes nor mortgages are required to be produced when the mortgagee in person makes or authorizes the cancellation.

It would seem that this defect in the statute might be remedied by legislation so as to require that the notes and mortgage shall be produced when the mortgagee enters the cancellation, but that is a matter for the legislative department.

The statute is plain, and in the absence of fraud participated in by the creditor or purchaser, if the statute is followed the creditor is protected by the entry of cancellation of the mortgage which, if made in the manner provided in the statute, is conclusive. Certainly the Connor Act applies to the registration of mortgages as against creditors and purchasers for value, which are included in the term “conveyances.” Mortgages have been uniformly held by this Court to be conveyances of the legal title, and require the formality of a conveyance in their assignment as against purchasers for value, and, therefore, as against purchasers, the legal title vested in the mortgagee comes within the provisions of the registration act. , Any protection against such result as has been produced in this case must be sought by appropriate action from the law-making department of the State.

Affirmed.